Mansion House warnings from Governor Andrew Bailey and Chancellor Jeremy Hunt about rising wages were no coincidence.
Data showing regular weekly wages rose 7.3 percent in the three months to May shows how embedded inflation has become.
Earlier this year, wage data was largely interpreted as a blow to real incomes, purchasing power and the economy’s resilience. No longer.
There is a great debate about whether inflation is supplier-driven, the result of companies increasing their profit margins, or whether wages are chasing prices.
The UK seems to have been influenced by both. Even if overall consumer prices drop with a shock, as falling energy prices finally make a difference, core inflation – minus fuel and food – could stick around.
Inflation struggles: The Bank of England’s monetary policy committee has made 13 consecutive increases in key interest rates since March 2020 and now stands at 5%
Is the right response for the markets to continue to push up bond yields and for the Bank of England to get excited about higher rates?
There are compelling reasons not to exaggerate the inner Paul Volcker. Conditions today are very different from those in the US in 1979, when Volcker took over the reins at the Federal Reserve.
The tool that brought the US economy to a halt and ushered in a recession was a credit card surcharge that had such a dramatic impact that it had to be scrapped.
Credit card interest rates in Britain are so high (18.9 percent on a Halifax Mastercard) that raising official rates has little impact on spending patterns.
Despite the outcry over the two-year, 6.66 percent fixed-rate mortgage — described as the “Number of the Devil” by a leading broker — no one should be too excited.
For some 700,000 households, their fixation will end in 2023, but it is quite possible that if overall prices fall, market rates will follow.
As a senior banker reminded me yesterday, arguments about the two-year fix aren’t very convincing since so many people are on longer fixes.
Post-Covid savings are not dwindling as fast and there is still a strong tendency to spend money and hit airports or the local eatery.
Two dissident members of the Bank of England’s Monetary Policy Committee, LSE professors Silvana Tenreyro (who has now left) and Swati Dhingra, who voted against raising interest rates to 5 percent, argued that monetary policy needs time to to work.
Pushing the UK into an unnecessary recession, when support for growth is needed, is an unnecessary punishment.
Natural order
At a time of geopolitical turmoil, the clash between Britain’s energy security demands and the ambitions of the climate change lobby is illustrated by Centrica’s new gas supply deal with the US.
While Labour, the SNP and Just Stop Oil are in full tears, the British gas owner acknowledges that additional supplies of liquefied natural gas (LNG) will ensure that British pensioners do not freeze in their homes as the UK races towards a carbon-free economy.
Under an agreement with US producer Delfin Midstream, the UK will have access to one million tonnes of LNG per year for 15 years, transported from a terminal in Louisiana.
One of the consequences of taxing oil producers in the North Sea until the kernels, backed by Labour, and blocking future exploration licenses in the North Sea, is that LNG is being shipped across the Atlantic with a large environmental footprint.
Centrica’s new £6.2bn contract is one of several initiatives CEO Chris O’Shea is taking to secure supplies as the company moves full steam ahead with greener technologies, from heat pump installation to hydrogen production.
The idea that the UK can simply cut off the natural gas supply, which is responsible for some 50 percent of Britain’s needs, is naive.
There is also a trading opportunity for Centrica with the ability to transfer any excess LNG supply to the mainland should there be UK surpluses.
The Russian war in Ukraine and the price shock that followed illustrate not only the need for energy security, but also the potential harm to consumers and the economy.
Arms race
What a dilemma for the environmental, social and governance (ESG) do-gooders who shun defense stocks.
Britain’s prime contractor BAE Systems is ramping up munitions production with a potential investment of £400 million as Ukraine defends itself against Putin’s evil empire with its cavalier approach to civilian life.
Better NATO howitzer shells and the cause of freedom than aerial bombing of the Kremlin and Joe Biden’s cluster bombs.
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